U.S. Court of Appeals for the First Circuit, QBE Seguros v. Carlos A. Morales-Vázquez, Docket No. 19-1503

 

Maritime Law

 

Admiralty

 

Marine Insurance Contracts

 

Doctrine of Uberrimae Fidei

 

Duty of Utmost Good Faith

 

Warranty of Truthfulness

 

False Statement

 

Actual Reliance is Not a Necessary Prerequisite for an Insurer to Void a Marine Insurance Policy under the Doctrine of Uberrimae Fidei

 

Materiality of a False Statement or an Omission, Without More, Provides a Sufficient Ground for Voiding Such a Policy

 

Waiver and Estoppel May Be Affirmative Defenses

 

Should Federal or State Common Law Apply?

 

English Admiralty Law

 

 

This appeal involves a dispute between a boat owner (who purchased a policy of marine insurance without disclosing, among other things, a prior grounding) and his insurance company. Resolving the appeal requires us to revisit the doctrine of uberrimae fidei — an entrenched principle of maritime law that imposes a duty of utmost good faith on the parties to marine insurance contracts. Concluding, as we do, that the district court faithfully applied this doctrine, we affirm the entry of judgment in favor of the insurer.

 

As part of his application for this insurance policy, Morales left blank the spaces provided for answers to questions asking him to describe his prior boating history and all accidents related to any vessel he had previously owned, controlled, and/or operated.

 

He omitted the remaining information called for by section six even though the application form plainly stated that "if incorrect answers are provided (either by error, omission or neglect), I will be in breach of this warranty and the policy, if issued, will be void from inception."

 

We think it useful to start by sketching the evolution of the doctrine of uberrimae fidei. The Latin phrase "uberrimae fidei" loosely translates as "utmost good faith." See Black's Law Dictionary (10th ed. 2014). As relevant here, the doctrine requires parties to a marine insurance contract to disclose all known facts or circumstances material to an insurer's risk. See Windsor Mount Joy Mut. Ins. Co. v. Giragosian, 57 F.3d 50, 54-55 (1st Cir. 1995). Under the doctrine, an insurer may void a marine insurance policy if its insured fails to disclose "all circumstances known to the insured and unknown to the insurer" that materially impact the insurer's risk calculus. Caitlin at Lloyd's v. San Juan Towing & Marine Servs., Inc., 778 F.3d 69, 83 (1st Cir. 2015) (emphasis in original); cf. Stipcich v. Metro. Life Ins. Co., 277 U.S. 311, 316 (1928) (holding to like effect with respect to certain contracts outside marine insurance context).

 

The origins of the doctrine can be traced back to eighteenth-century London, which was — and remains — a global insurance hub. In its nascent form, the doctrine applied to a myriad of insurance contracts across a wide swath of industries. As early as 1766, Lord Mansfield recognized that insurance contracts impose a heightened duty of good faith to prevent a party from omitting or concealing facts that would induce the counterparty "into a bargain, from his ignorance." Carter v. Boehm (1766) 97 Eng. Rep. 1162, 1164 (K.B.). Such a requirement was rooted in practical wisdom, recognizing that an insurer often lacked the ability to verify the insured's representations before issuing a policy. See Thomas J. Schoenbaum, Admiralty and Maritime Law § 19:14, at 460 (6th ed. 2018). This practical wisdom still rings true when applied to marine insurance — an industry in which, for example, a policy may have to be issued in London, on a time-sensitive basis, for a vessel berthed halfway across the globe.

 

American courts first recognized the doctrine of uberrimae fidei in connection with marine insurance contracts in the early nineteenth century. See McLanahan v. Universal Ins. Co., 26 U.S. (1 Pet.) 170, 185 (1828). In 1882, the Supreme Court confirmed the strict disclosure requirements that the doctrine imposed on an insured. See Sun Mut. Ins. Co. v. Ocean Ins. Co., 107 U.S. 485, 510-11 (1883).

 

For some time, American and English law concerning marine insurance continued to develop in parallel through a parade of judicial decisions. Parliament, however, codified the by-then-venerable doctrine of uberrimae fidei by including it in the Marine Insurance Act of 1906 (1906 MIA). See Marine Insurance Act 1906, 6 Edw. 7 c. 41, § 17 (U.K.). Congress, however, remained silent; and American courts continued to develop their own federal common law of admiralty and continued to interpret marine insurance policies as incorporating, by implication, the doctrine of uberrimae fidei. See, e.g., San Juan Towing, 778 F.3d at 82; N.Y. Marine & Gen. Ins. Co. v. Cont'l Cement Co., 761 F.3d 830, 839 (8th Cir. 2014); AGF Marine Aviation & Transp. v. Cassin, 544 F.3d 255, 263 (3d Cir. 2008); Certain Underwriters at Lloyd's, London v. Inlet Fisheries Inc., 518 F.3d 645, 650 (9th Cir. 2008); HIH Marine Servs., Inc. v. Fraser, 211 F.3d 1359, 1362 (11th Cir. 2000); Puritan Ins. Co. v. Eagle S.S. Co. S.A., 779 F.2d 866, 870 (2d Cir. 1985).

 

Parliament lately adopted a number of insurance reforms. As relevant here, Parliament passed the Insurance Act of 2015, which (among other things) effectively amended the 1906 MIA to preclude an insurer from voiding a marine insurance policy by recourse to the doctrine of uberrimae fidei. See Insurance Act 2015, c.4, § 14 (U.K.) ("Any rule of law permitting a party to a contract of insurance to avoid the contract on the ground that the utmost good faith has not been observed by the other party is abolished."). Even so, Congress did not follow Parliament's lead.

 

This lack of congressional action is significant. As the federal common law of admiralty developed, the Supreme Court acknowledged that congressional silence left room for courts, among others, to fill the vacuum. See Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 321 (1955) ("We, like Congress, leave the regulation of marine insurance where it has been — with the States.").

 

(This means, of course, that questions sometimes arise in maritime cases as to whether federal or state common law should apply. See San Juan Towing, 778 F.3d at 76-80. Here, however, the parties present their uberrimae fidei arguments exclusively in terms of federal common law, and we therefore may accept the parties' plausible view that federal common law supplies the substantive rules of decision. Cf. Borden v. Paul Revere Life Ins. Co., 935 F.2d 370, 375 (1st Cir. 1991) (holding that, in diversity jurisdiction, court may accept parties' plausible agreement as to which state's law applies).)

 

Standard Oil offers us two important takeaways. First, American courts are not bound by legal developments in the United Kingdom. And even though the Standard Oil Court was speaking of judicial decisions, we think it follows, a fortiori, that acts of Parliament are equally non-binding. Second, although harmony between American and English admiralty law is desirable, "our practice is no more than to accord respect to established doctrines of English maritime law." The respect accorded by American courts to English maritime law stems from the wisdom of the particular doctrine, not from either the acceptance or the rejection of that doctrine by Parliament. It follows, we think, that federal courts tasked with hearing admiralty cases should take heed of developments in English law, but they are not obliged to change course merely because Parliament acts to alter a previously entrenched principle.

 

(…) We have never held that actual reliance is a necessary prerequisite for an insurer to void a marine insurance policy under the doctrine of uberrimae fidei. Rather, we have held that the materiality of a false statement or an omission, without more, provides a sufficient ground for voiding such a policy.

 

(If the named insured has, before or after a loss made a false statement or representation with respect to this insurance or has concealed or misrepresented any material fact or circumstance relating to this insurance, this policy shall be void and without effect. The false statement or representation or concealment need not be related to the damages or loss claimed in order to void the entire policy.

This language embodies the core of the uberrimae fidei
that omission or misrepresentation of a material fact is a sufficient ground, in and of itself, to allow an insurer to void a policy of marine insurance).

 

(…) Contractual requirements may operate as affirmative defenses. For example, waiver and estoppel may be affirmative defenses to a claim that an insured has committed a breach of a policy warranty.

 

 

Secondary sources: Thomas J. Schoenbaum, Admiralty and Maritime Law § 19:14, at 460 (6th ed. 2018); Thomas J. Schoenbaum, The Duty of Utmost Good Faith in Marine Insurance Law: A Comparative Analysis of American and English Law, 29 J. Mar. L. & Com. 1, 11 (1998).

 

 

(U.S. Court of Appeals for the First Circuit, Jan 19, 2021, QBE Seguros v. Carlos A. Morales-Vázquez, Docket No. 19-1503)

 

 

 

 

U.S. Court of Appeals for the Eleventh Circuit, Map Geico Marine Insurance Company, v. James Shackleford, Docket No. 18-12105

Maritime Law

Admiralty Jurisdiction

Admiralty Law

Insurance Law

Marine Insurance Contracts

Maritime Contracts

Maritime Doctrine of uberrimae fidei

Policy Construction

Waiver

Right to Contract Out of Federal Maritime Law

Florida Law

(…) In March 2016, Shackleford obtained a liability-only policy from Geico Marine.

General Conditions: (…) CRUISING LIMITS: While afloat, the insured Yacht shall be confined to the waters indicated below:
(There is no coverage outside of this area without the Company’s written permission.)

U.S. Atlantic and Gulf Coastal waters and inland waters tributary thereto between Eastport, ME and Brownsville, TX, inclusive and the waters of the Bahamas including the Turks and Caicos, however the boat must be north of Cape Hatteras, NC from June 1 until November 1 annually.

The day after the policy issued, Shackleford asked Geico Marine to change the policy to “Port Risk Ashore.” That restriction provides no coverage for navigation; instead, it provides coverage only while the vessel is out of the water. Geico Marine issued an endorsement and updated declarations page adding the restriction that same day. Because coverage now applied only if the vessel was ashore, the updated declarations page removed the original navigational limit that required the vessel to be north of Cape Hatteras during hurricane season if afloat.

(…) In May 2016, Shackleford called Geico Marine to seek removal of the Port Risk Ashore restriction so he could sail the vessel to Fort Lauderdale. He also confirmed that the policy now insured the vessel’s hull for $264,000 and that the vessel had “full coverage” for the voyage. On May 27, 2016, Geico Marine sent Shackleford an email confirming that it had removed the Port Risk Ashore restriction. Attached to the email was an endorsement removing the restriction and an updated declarations page. The updated declarations page reinstated the original navigational limit that required the vessel “while afloat” to be “north of Cape Hatteras, NC from June 1 until November 1 annually.”

(…) On May 28, one day after Geico Marine removed the Port Risk Ashore restriction and reinstated the navigational limit, Shackleford set sail from Taylor Boatworks to Fort Lauderdale. After arriving in Fort Lauderdale, Shackleford anchored the vessel in nearby Lake Sylvia. In June 2016, a storm caused the vessel to drag anchor and drove her into a sea wall, leading her to take on water and suffer other damage. Shackleford filed a claim under his insurance policy, but Geico Marine denied coverage.

After denying coverage, Geico Marine filed a declaratory-judgment action against Shackleford, 28 U.S.C. § 2201, and invoked admiralty jurisdiction, id. § 1333. Geico Marine sought a declaration that the policy was void ab initio under the maritime doctrine of uberrimae fidei, or utmost good faith, because Shackleford failed to disclose material facts about the vessel when procuring insurance. And it sought a declaration that coverage was barred by the policy’s navigational limit, which required the vessel to be north of Cape Hatteras, North Carolina, during hurricane season.

Marine insurance contracts qualify as maritime contracts, which fall within the admiralty jurisdiction of the federal courts and are governed by maritime law. AIG Centennial Ins. Co. v. O’Neill, 782 F.3d 1296, 1302 & n.6 (11th Cir. 2015) (citing U.S. Const. art. III, § 2, cl. 1 and 28 U.S.C. § 1333). Even so, “it does not follow that every term in every maritime contract can only be controlled by some federally defined admiralty rule.” Id. at 1302 (alteration adopted) (quoting Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310, 313 (1955)). “In the absence of a ‘judicially established federal admiralty rule,’ we rely on state law when addressing questions of marine insurance.” Id. (quoting Wilburn Boat, 348 U.S. at 314); see also Bryan A. Garner et al., The Law of Judicial Precedent § 69, at 570 (2016). The parties agree that Florida law fills any gaps here.

We reject Shackleford’s arguments and agree with Geico Marine that the navigational limit bars coverage. And because we agree with Geico Marine on this issue, we need not address its argument that Shackleford breached a duty of uberrimae fidei. The navigational limit is dispositive.

No established rule of maritime law governs whether a navigational limit is part of a marine insurance contract, so we apply Florida law to determine whether the policy contained a navigational limit. AIG Centennial, 782 F.3d at 1302. Under Florida law, we first look to the text of the policy and construe the policy “in accordance with its plain language.” Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 845 So. 2d 161, 165 (Fla. 2003). But “if the relevant policy language is susceptible to more than one reasonable interpretation, one providing coverage and the other limiting coverage,” the policy is ambiguous and we must construe it in favor of coverage. Id. (alterations adopted). That “a provision is complex and requires analysis for application” does not “automatically” mean it is ambiguous. Id. Before concluding that a provision is ambiguous, we must “read the policy as a whole, endeavoring to give every provision its full meaning and operative effect.” Id. at 166.

Reading the policy as a whole, we readily conclude that it unambiguously contained a navigational limit when the loss occurred.

(…) No established rule of maritime law governs the waiver of a navigational limit, so we apply Florida law to determine whether Geico Marine waived its right to enforce that provision. AIG Centennial, 782 F.3d at 1302. In Florida, implied waiver of a contractual right requires “conduct which implies the voluntary and intentional relinquishment of a known right.” Raymond James Fin. Servs., Inc. v. Saldukas, 896 So. 2d 707, 711 (Fla. 2005). Shackleford’s theory of implied waiver appears to be that Geico Marine waived the navigational limit by agreeing to a course of conduct that it knew would make it impossible for Shackleford to comply with the requirement that his vessel be north of Cape Hatteras by June 1. We are unpersuaded.

Geico Marine knew Shackleford was taking the vessel to Fort Lauderdale for “extensive repairs,” and it could reasonably have expected that Shackleford would comply with the navigational limit by having the vessel hauled ashore for repairs in Fort Lauderdale by June 1. The only way Geico Marine’s conduct could have suggested it intended to waive the navigational limit is if the voyage to Fort Lauderdale was impossible to complete by June 1. But Shackleford conceded at oral argument that the vessel arrived in Fort Lauderdale by June 1 and that he intended to haul the vessel ashore upon arrival, which would have complied with the navigational limit.

That the vessel arrived in Fort Lauderdale by June 1 shows that it was possible to complete the voyage by June 1. So Geico Marine plainly did not agree to a course of conduct that it knew would make compliance with the navigational limit impossible. Nothing in this record supports the conclusion that Geico Marine voluntarily and intentionally relinquished its right to enforce the navigational limit. The district court erred in ruling otherwise.

Even if Geico Marine did not waive the navigational limit, Shackleford argues that his breach of the navigational limit does not bar coverage because Florida law does not strictly enforce express warranties in marine insurance contracts. As Shackleford acknowledges, federal maritime law requires “strict” or absolute enforcement of express navigational warranties. Lexington Ins. Co. v. Cooke’s Seafood, 835 F.2d 1364, 1366 (11th Cir. 1988); see also Strict, Black’s Law Dictionary (11th ed. 2019) (“Absolute; requiring no showing of fault.”). And established federal maritime rules, like the rule requiring absolute enforcement of express navigational warranties, ordinarily control “even in the face of contrary state authority.” AIG Centennial, 782 F.3d at 1303. But Shackleford contends that he and Geico Marine contracted out of the federal maritime rule of enforcement and instead selected Florida’s more forgiving rule.

Although parties to a marine insurance policy are generally free to contract out of federal maritime law, King v. Allstate Ins. Co., 906 F.2d 1537, 1540–42 (11th Cir. 1990), we are not persuaded that Shackleford and Geico Marine did so.

The phrase “terms of this policy” appears in a provision titled “Conformity to Law,” and as its name suggests, the provision operates to conform any illegal policy terms to Florida law. Provisions like this one exist to address conflicts between the contract the parties wrote and what the law requires.

Shackleford effectively asks us to transform the policy’s conformity-to-law provision into a choice-of-law provision. By default, federal maritime law displaces contrary state law when construing a marine insurance contract. AIG Centennial, 782 F.3d at 1302–03. Shackleford would have us read the conformity- to-law provision as reversing this default rule, so that state law displaces any contrary federal maritime rule. But the provision does no such thing. The parties could have included a choice-of-law provision selecting state law over federal law, but they did not. And we “may not rewrite the parties’ contract, add meaning that is not present, or otherwise reach results contrary to the intentions of the parties.” Taurus Holdings, 913 So. 2d at 532.

Because the parties did not contract out of maritime law, we must apply the federal rule requiring absolute enforcement of express navigational limits. Under that rule, “breach of an express navigational warranty by the insured releases the insurance company from liability even if compliance with the warranty would not have avoided the loss.” Lexington, 835 F.2d at 1366. Here, the policy contained a navigational limit that conditioned coverage on the vessel being “north of Cape Hatteras, NC from June 1 until November 1 annually” if the vessel was “afloat.” The vessel suffered damage while afloat during a storm in Florida in early June. Because the vessel was outside of the covered navigational area when the loss occurred, the policy does not cover the loss.

(U.S. Court of Appeals for the Eleventh Circuit, December 17, 2019, Map Geico Marine Insurance Company, v. James Shackleford, Docket No. 18-12105, For Publication)